2018 China Domestic Auto Brand White Paper

About the report

Through quantitative and qualitative analysis, the report analyses the development of domestic auto brands and the shift in the competitive landscape since China's World Trade Organization entry. It elaborates on three major topics for domestic auto brands: structural opportunities for traditional fuel vehicles; first-mover advantages in electrification; and risks and opportunities in the mobility market. The report then takes a deep dive into the problems and challenges faced by domestic auto brands, ending with several suggestions on how they can best win out in the market.

Viewpoints / key findings

• Status quo of domestic auto brands. In recent years, the overall competitiveness of domestic auto brands has been enhanced, with increased market share and higher prices. Moreover, they have made huge breakthroughs in R&D, model design, understanding consumer demand, platform construction, product experience and marketing innovation. From 2018, external competition will become more complex. Domestic auto brands will face more challenges, including stringent fuel consumption regulations. The industry is undergoing fundamental changes, with technological transformation towards connected vehicles and autonomous driving, and the emergence of new mobility models. 
• Opportunities before the revolution. Domestic auto companies need to take advantage of their existing resources to seize opportunities. 
  • Structural opportunities for traditional fuel vehicles. By 2025, the post-90s will take the place of the post-80s generation as the main driver of China's car consumption, and the middle class population from 3^rd- and 4^th- tier cities will surge, making it the most important power in China overall household's consumption and emerging consumption. This means consumption upgrading will become mainstream, leading to growth of China's auto consumption in the coming decade, including growing demand from younger generations and for higher-end products.
  • First-mover advantages in electrification. For domestic auto brands, increasingly stringent fuel regulation is a major roadblock to development. Enterprises must balance the situation by developing new energy vehicles. They can build new platforms for R&D and production, and end their dependence on subsidies. 
  • Risks and opportunities in the mobility market. Most domestic auto brands are still cautious on shared mobility, even though it is an important future channel for sales of new energy vehicles. They should study and judge the impact of changing mobility scenarios and how these will change demand for vehicle R&D and design.
• Challenges need to be tackled. Domestic auto brands face the following challenges:
  • Domestic auto brands still have obvious weaknesses. In R&D, domestic auto brands have not established well-organized product spectrum planning or strict lifecycle management. In production, especially supply chain management, most domestic auto brands are struggling to ensure priority supply of core components. They also have substantial room to improve control of procurement and production costs.
  • Brand promotions cannot rely solely on dislocated competition. Most domestic auto brands are still at the "self-declaration" stage – they are a long way from having brand value resonance and social responsibility. Compared to foreign auto companies, domestic companies are relatively weak in advocating brand values such as quality and durability.
  • Organizational efficiency is the biggest hindrance to the development of local state-owned auto companies. Domestic auto companies generally lack a clear development strategy, especially in terms of scientific system capability (systems for market-centered product R&D, technology, supply chain management, marketing and after sales service, etc.), which can establish tangible or intangible contact with consumers. These companies need long-term, stable decision-making mechanisms and efficient organizational processes.
• Suggestions for domestic auto enterprises：
  • Advance basic skills before upgrading your brand. Market competition is gradually shifting from product to brand, but domestic auto players still need to solve the more critical issues of product quality, power and performance. Meanwhile, raising brand premium is not only about product, it's also about services, especially during and after a sale. At present, domestic automakers have disadvantages to foreign brands in the quality and efficiency of their sales and after-sales services. Domestic auto brands can cooperate with internet companies to narrow the gap.
  • Focus on system construction. Platform strategy can help manufacturers make great breakthroughs in vehicle development flexibility, production efficiency and cost controls. Through platform operations, an enterprise can diversify its product chain, developing different products on the same platform which match different functions and styles. 
  • The channel for brand upgrades is narrowing, and newcomers must be patient and steady. Most domestic auto brands are still trapped by vague brand positioning, redundant product lines, and intensified internal consumption. Domestic auto companies must be fully aware of their own positions and reinforce their existing foundations. After reaching a certain scale, they can upgrade their brands through generations of products that reduce the price gap with joint venture brands.